Business Start-up Scheme (Hansard, 4 June 1981)

§ Mr. Peter Rees

Yes. The Government beleive that the scheme will make a major contribution to the financing of new business start-ups. In response to representations which I have received. My right hon. and learned Friend the Chief Secretary is tabling today a number of amendments which will ensure that the benefits of the scheme extend over as wide an area as possible, consistent with the basic objectives of the scheme and the view of priorities which it reflects. The following is a statement issued by my right hon. and learned Friend the Chancellor of the Exchequer todayI announced the Business Start-up Scheme in my Budget as a new and effective incentive, to meet difficulty which people starting up their own company often face in attracting sufficient risk capital to finance it during its critical early years—sometimes called the "equity gap". It is designed to encourage the outside investor (as distinct from the entrepreneur himself) to put up the risk capital necessary (in addition to the entrepreneur's own equity) in a new business (before it can hope to have established a track record), in a wide range of manufacturing, service and other activities and to achieve this in a cost-effective way. Investment of this kind is inevitably risky. I have therefore designed the new incentive to shift the existing odds dramatically in favour of the investor—to cushion the risk of loss and to multiply the opportunity of profit. The scheme will give relief at the investor's full marginal tax rate, including the investment income surcharge. Where the investor subscribes for £10,000 of shares in any one year, the Exchequer will repay up to £7,500. Where the investor subscribes for £30,000 over the 3 years of the scheme, the Exchequer will repay up to £22,500. And this will be in addition to the normal tax reliefs available as the money is in turn invested by the company. Since the scheme is designed to give this very generous new tax incentive for a precisely defined purpose, rules are needed, 401W and complication is unavoidable. But when all the details are finally settled and understood, I am sure that investors and their professional advisers will see that we are putting on to the Statute Book a tax incentive unparalleled in any major Western country. I have considered very carefully the many suggestions which have been made for extending the scope of the scheme. In many cases these would be inconsistent with the objectives that I have set. I have considered sympathetically a range of ideas designed to strengthen the operation of the scheme. Today, the Government have tabled a number of amendments and will be prepared to accept the intention behind some already on the Order Paper. Some of them are essentially technical. But others will ease some of the basic ground rules. And my colleagues will of course listen very carefully to the views expressed, when the clauses are debated in Standing Committee shortly. The most important changes will be:

relief will be available for the first 5 years (previously 3 years) of the life of the new business; relief will be available on up to 50 per cent. (previously 30 per cent.) of the ordinary share capital of the company;
relief will be available where the company has one or more 100 per cent. owned subsidiaries, each of which would also qualify under the scheme; relief will be available for investment in more than one class of ordinary shares;
relief will be available even though a company has fixed rate preference shares;
relief will be available where a brother or sister is the investor;
there will be some relaxation of the rules about circumstances in which relief can be withdrawn and in the corresponding interest provisions;
relief will not be prejudiced where the investor receives fees from the company in his capacity as a professional man or trader.
These amendments add to the attractiveness of the scheme and will, I am sure, lead to a good take up.